DOMESTIC money managers are gradually warming up to ‘wrap-like’ portfolio structures that are popular in developed markets. Wealth managers and brokers have begun offering portfolio management services (PMS) with mutual fund units as the underlying.
Known as ‘mutual fund wraps’ or ‘PMS fund of funds’, this product works on the same principles of highly-customised PMS schemes and is meant exclusively for affluent investors. In developed markets, mutual fund wraps are ‘do-it-yourself’ products and are ‘non-discretionary’ in nature. In non-discretionary portfolios, investors have the freedom to select funds of their choice. That is, they can structure their own portfolios, using third-party wrap platforms, with the help of an external investment expert.
In India, MF wrap providers offer discretionary portfolios where the wealth manager or broking firm will decide on investment strategies. The ‘wrap structure’ is managed like a ‘fund of fund’ that invests in diverse schemes and sectoral themes run by different fund houses. Edelweiss Capital, Bonanza Portfolio, Emkay Global, Motilal Oswal Financial, Ifast Financial (through online) and NJ India Invest are among the top providers of ‘MF wraps’.
“Our portfolio has mutual fund units of 5-10 asset management companies, covering various sectors, themes and investment strategies. Our investment coverage is restricted to 25 top equity funds (plus some debt exposure). Single stock exposure will not exceed 6% in our portfolios,” said Hiren Dhakan, associate fund manager, Bonanza Portfolio.
Under ‘wrap’ portfolios, the broking firm accepts a sizeable investment, generally between Rs 5 lakh and Rs 25 lakh, from the investor, to be deployed in an array of equity schemes. The broking firm also takes a power of attorney from the investor, empowering the firm’s investment manager to manage the portfolio. The broker charges anywhere between 1% and 2% of net investment as annualised management charges. Some broking firms also stake claim to a small portion of profits derived from investments. Most ‘MF wrap’ providers declare portfolio NAV at the end of the day.
Wrap fund managers expect to generate 25-30% returns over a threeyear period. Investment tenure in ‘wrap MFs’ could be 3-5 years. If an investor withdraws his funds before one year, he will have to pay an exit load.
“We’re offering non-discretionary wrap schemes to our clients through the Ifast interface. Using our portal, investors can buy multiple units of any fund house by giving just one application and cheque. A non-discretionary model helps the investor have a portfolio to his liking and risk profile,” said Rajesh Krishnamoorthy, managing director, Ifast Financial.
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In the West, MF wraps are ‘do-it-yourself’ products Investors have the freedom to select funds of their choice Edelweiss, Bonanza, Emkay, Motilal Oswal Fin are among top providers of ‘MF wraps’ here